Focusing on Institutional Reform

 

Dr Nguyen Dinh Cung, Chairman of CIEM, said that Vietnam’s economic growth has yet to regain recovery momentum. The second-quarter GDP growth was 5.57 per cent from the second quarter of 2015, thus making the full-year growth target of 6.7 per cent quite hard to achieve. He added that the growth of the industrial - construction sector reached 7.61 per cent in the second quarter, while the agro-forestry sector was little changed. The added value of this sector increased by 0.06 per cent in the second quarter and 6.35 per in the first six months. The first-half export growth was the lowest in many years. The country’s exports valued US$43.4 billion in the second quarter and US$82.1 billion in the first half of 2016, up merely 5.7 per cent, far below the full-year growth target of 10 per cent set by the National Assembly - the country’s legislative body. Meanwhile, export growth was mainly driven by the foreign direct investment (FDI) sector.

 

Also according to survey data from CIEM, bad debt ratio rose slightly to 2.62 per cent by the end of March. The total means of payment climbed 4.84 per cent in the second quarter and 8.07 per cent in the first six months.

 

Before these developments, Dr Cung wondered why the Government of Vietnam has not acknowledged this reality and revised down the growth outlook after many international specialists and organisations like the World Bank (WB) lowered their growth forecast for Vietnam to just 6 per cent. This may be a new way of administration of the Government, he said. By not lowering the growth target, it will look into weaknesses and their causes to have proper solutions.

 

Mr Phan Ngoc Thang, an economic expert from the Banking Strategy Institute (BSI) under the State Bank of Vietnam (SBV), attributed slowing growth to the financial - banking sector. Specifically, interbank monetary market administration measures are inconsistent with the current status of the economy. If it is underperformed, it will need growth-boosting measures and lowering interest rates or issuing bonds will be easier as well. In addition, interest rate reduction plan will boost credit growth and reduce costs for both businesses and people. He added that this will very much support business because the higher spending will supplement aggregate demand and in turn reduce bad debts at banks. This is also an indirect way to handle bad debts.

 

The Government of Vietnam is still shouldering a 3 per cent bad debt load, but it is temporarily kept at VAMC and remains unsettled, Thang said. Therefore, with VND200 trillion of bad debts at VAMC, the State Bank of Vietnam (SBV) should consider increasing international reserves to boost dong liquidity and lower interest rates. Before this reality, VAMC needs to take more drastic measures to address this “blood clot” of bad debt rather than monetary policies as now, he added.

 

Dr Luu Bich Ho said that the Government should seek growth momentum from the private sector. To be specific, it needs to open up the market for the well performing private sector because where there is effect, there is growth.

 

Dr Le Dang Doanh noted that the newly elected Government needs serious studies on wide-ranging reform plans and programmes with the fundamental objective of macroeconomic stability and economic reform policies.

 

Sharing the standpoint of Dr Doanh, Dr Nguyen Dinh Cung pointed out that the foundation of sustainable growth and development still lies at institutional reform stage. How can institutional reform create a healthy business environment and meet expectations of the business community and people? This is the key issue for the economy to re-establish high and more sustainable economic growth in the second half of 2016 and subsequent years.

 

Dr Nguyen Quang Thai said the Government must give priority to macroeconomic reforms and deal with barriers to growth like high debt ratio and budget deficit.